My take which OP wont like - do not use the RRSP.
Anyone in Vancouver that buys a condo right now will be underwater big time in two years.
If it is a brand new (yet to be build) condo - by the time it is build the price will be lower more than the 20% you are putting down now. At that point you probably could walk away from the deal foregoing the 20% you put down to limit your losses. If the developer decides to sue you can declare bankruptcy and your RRSP is protected (only the contributions made in the last 12 months preceding the bankruptcy filling date are not exempt from this protection)
If it is an existing unit - the price will go down big time too. You can save on the rent money but the property taxes and condo fees will be higher (other underwater people will be bailing out too) and someone still has to pay the fat salaries and pensions for the "public servants" - citywide and province-wide(NDP...)
This is assuming that the current laws regarding the bankruptcy protected assets stay as they are - this may change if the Canadians start declaring bankruptcy in droves....
And do not think for a moment that your RRSP will be safe and will grow (unless you have GIC like investments only) - they are millions of people worldwide working in and around the "investment world" whose obscene salaries and bonuses are provided by the "greatest fool"
Aug 2nd, 2012 10:30 AM #31
- Join Date
- Apr 3rd, 2007
Last edited by bcbgboy13; Aug 2nd, 2012 at 10:33 AM.
Aug 2nd, 2012 11:43 AM #32
Aug 2nd, 2012 11:46 AM #33
I'm purchasing in Downtown Vancouver from an existing unit, where price drops the least. It's projected that prices will only drop 1% to 2% in the next year, difference isn't significant.
Aug 2nd, 2012 11:48 AM #34
Aug 2nd, 2012 11:48 AM #35
Aug 2nd, 2012 12:17 PM #36
By that definition everything is more expensive. The pre-tax cost of milk is higher too as your income goes up.
The tax is going to be collected on that income whether you use it to pay back your HBP, buy a new car, or throw it into the fireplace, so I have trouble seeing any scenario where this would cause you to act differently.
Aug 2nd, 2012 12:31 PM #37
So if in tax-year 2012 you have $10k of RRSP room, and you also withdraw $25k of HBP, then in (say) December 2012 you can go right ahead and deposit $35k back into your RRSP. When doing your taxes you'll designate that $10k was your RRSP contirbution (for which you'll get a tax rebate) and that $25k was a HBP repayment (which reduces your HBP liability balance to $0.)
If instead of $35k, you put $20k in then you get to make the same decision - how much are you going to declare as new RRSP contributions vs. how much is HBP payback. That's how I remember it at least, and that's also how CRA's website describes it.
There are situations where paying the HBP back first is better, and other situations where getting the RRSP deduction is better - CRA lets you choose.
Aug 2nd, 2012 12:48 PM #38
- Join Date
- Aug 1st, 2012
- WHITE ROCK
Well apart from the bad idea of investing in real estate right now if it's happening it's happening.
That said it's very simple. If your making more money off of what you have in your RRSPs and TFSA than you would be paying in mortgage interest (with low rates should be simple) then use your savings, then the RRSP loan, the the TFSA, in that order, to get to 20% while leaving the rest to grow in your retirement account.
However, if you're like most people, and have most of your TFSA in GICs and your RRSP is in similar crappy low yield stuff, then toss every penny you can at your downpayment. Your going to need it if you don't want to be underwater come re-assesment time.
Aug 2nd, 2012 12:53 PM #39
Aug 2nd, 2012 02:05 PM #40
Aug 2nd, 2012 02:28 PM #41
Aug 2nd, 2012 02:40 PM #42
Even if you repay it, you're using money with the 15% higher rate taken off of it vs the 10% you originally deferred.
So say you bought $1000 of RRSPs. You originally would have paid 10% or $100 in taxes but that was deferred. Now you're in the higher bracket, you're going to pay $150 on that $1000.
Last edited by rems; Aug 2nd, 2012 at 02:44 PM.
Aug 3rd, 2012 10:26 AM #43
If I find a $100 bill under my mattress that I earned when my effective tax rate was 10%, it has the same value as the $1
- Year1: My effective tax rate is 10% and I have $1000 in savings, which pre-tax was worth $1100.
- Year1: I deposit $1000 of that in my RRSP and get a $100. My bank gives me this as a nice $100 bill. I notice that the date on the bill is 1998, and I put it under my mattress.
- time goes by and I save nothing.
- Year10: My effective tax rate is now 20%. I manage to save $100 which took $120 of pre-tax income. I get a $100 bill from the bank, and I notice that it's dated from the year 2008.
- Year10: Because I am about to buy a house, I also withdraw $100 from my RRSP using the HBP. The bank hands me a crisp-new $100 bill that I notice is dated 2012.
- Year10: I decide to make a smaller downpayment than I thought, so I don't spend any of my $100 bills and they all sit under my mattress.
- time goes by, we're now in the future!
- Year15: My effective tax rate is now 30%. I manage to save $100, which took $130 pre-tax income. I get a $100 bill from the bank, and I notice that it's dated from the year 2015.
I now have four $100 bills dated 1998, 2008, 2012, and 2013. I got those four different bills at 3 different effective tax rates and through 3 different mechanisms, Some cost me more to earn than others. Nevertheless they're interchangeable. It won't matter which one you use to payback your HBP, or what tax rate you earned it at. You'll still be giving $100 to the bank, leaving $300 for yourself.
The pre-tax cost only matters if you have some mechanism of reducing the tax. We don't here. The scenarios being considered all have equal tax consequences.
Aug 3rd, 2012 10:50 AM #44
When you buy RRSPs you're deferring those marginal tax amounts. You can't just say I'm using the $1000 dollars from the 0% tax bracket to pay it. Because they'll count that $1000 as income at the highest bracket.
To look at it another way.
You bought RRSPs at 10% tax.
You repaid at 15%.
You retire at 5% tax.
Scenario 1: You don't use it for HBP
So that $1000, you deferred $100 in tax.
Upon retirement you pay $50 in taxes.
That means buying that RRSP saved you $50 in taxes
Scenario 2: You use the HBP
Again you defer $100 in taxes.
You take out that $1000 (tax free) for HBP for a savings of $100.
You now have higher income and you would have paid $150 in taxes for that $1000 to repay the HBP. (If it wasn't for HBP, that RRSP contribution would have deferred the tax upon withdrawal at retirement.)
When you retire you pay $50 in taxes.
Your net savings for buying the RRSP is $0.
(Of course this doesnt take into account growth, inflation, interest savings from the mortgage, etc...)
Aug 4th, 2012 07:42 AM #45
- If no, then I'd rather be guy #2 since I'd have $1000 extra dollars to retire on.
- If yes, then he's going to pay another $150 in tax and end up in the same position as guy #1 with $200 in taxes paid and $1950 in his bank account.
*that's* my point - he's going to pay the same tax regardless of whether if uses that income to pay back a HBP, or whether he buys milk with it. If you are going to compare two scenarios, then you have to compare them accurately. We're talking about income tax - you can't include income in one scenario and exclude it in the other!
Last edited by Steve98; Aug 4th, 2012 at 08:40 AM.